Nick Clegg, the Liberal Democrat leader, faces a Commons rebellion next week
over plans to cap the benefits that can be received in a single household at
£26,000.

Simon Hughes, the party's deputy leader, is known to strongly oppose the plan, which was voted down by the House of Lords last week.

Those who oppose the bill say that imposing the same cap on all households, regardless of size, would harm children.

This weekend senior Lib Dems are trying to placate their MPs by brokering a deal for transition payments to help those at risk of losing their homes to be given breathing space.

One Lib Dem activist said this weekend: "This will go right to the wire. [Lib Dem] MPs will decide where their consciences lie this weekend and then the government will seek to turn them around early in the week before the bill returns to Commons on Wednesday. May be ten MPs could rebel, but it could be many more."

Last week an alliance of bishops, senior Lib Dems and independent peers defeated key elements of the government's Welfare Bill. Lord Ashdown, the party's former leader, was one of the leading figures behind the revolt.

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Lords voted through six amendment to the bill. After the bill's third reading in the Lords on Tuesday, the legislation will return to the Commons the next day.

Iain Duncan-Smith, the secretary of state for work and pensions, this weekend reasserted his support for the £26,000 benefit cap.

"Millions of people are trapped on benefits under a welfare system where taking up work can leave many worse off," said Mr Duncan-Smith.

"This is absurd and the British public expects this Government to do something about it.

"Political history is littered with piecemeal attempts at reform and this has left us with a welfare state that is complex beyond belief, a system that actively makes benefit dependency a legitimate lifestyle choice and effectively condemns children to a life of poverty and lack of ambition.

"That must end. Work is the best hope for a better future – our welfare system has to support that, not undermine it."

The benefits cap also posses problems for the Labour Party. More than 80% of voters are in favour of the cap, with many of the view that a £26,000 limit – equivalent to the average household income – is in fact too generous.

Officially Labour is backing the government's plan, but would like to see a larger cap in London to reflect higher rents in the capital. However, those on the Left of the party may still seek to vote against the cap.

Meanwhile, in another threat by peers to ministers' legislation, senior bishops are preparing to block key aspects of the Coalition's legal aid reforms, saying they will have a "damaging effect" on children in custody battles.

The bishops are joined by prominent peers, including Baroness Grey-Thompson, the former Paralympic athlete, who last week joined forces with them to exclude child benefit from the Government's proposed cap on welfare payments.

The Rt Rev John Packer, the Bishop of Ripon and Leeds, who tabled last week's amendment to the Welfare Reform bill, said bishops had similar concerns about children being penalised by the legal aid bill.

He said: "We have been particularly concerned in the current legislation on legal aid about provision of legal aid for family law and the danger of people not being able to access legal aid in family law cases where they are talking about the care of children and who has responsibility for the children and so on.

"That's another area where, in a sense, the same sort of themes of care for children come up again.

"There's such a weight of legislation around at the moment that I think one of the things which we are doing is checking out the implications of this not just for children but for [others] who are most needy in our society."